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Question - Orient Corporation manufactures auto parts for various automakers. In the past, Orient has been using a traditional overhead allocation system based solely on machine hours. Sensing that this system was distorting costs and selling prices, Orient has decided to switch to an activity-based costing system using three activity cost pools. Information on these activity cost pools are as follows:
Activity Cost Pool
Total Cost
Total Activity
Labor Related
$72,000
10,000 Direct labor hours
Machine Related
$180,000
16,000 Machine Hours
Quality Control
$18,000
900 Inspections
Orient has received an order and will complete as Job #400 and expect to incur $1,200 of direct material, 40 hours of direct labor at $32 per hour, 80 machine hours, and 10 inspections. Orient needs a markup of 30% on the job.
A) Calculate the activity rates and compute the expected cost of job#400 under the activity-based costing system? What should be the quote on this job?
B) Relative to the activity-based costing system, would Job #400 have been overcoated or undercoated under the traditional system and by how much?
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